Japan’s Topix Snaps Five-Day Rally on U.S. Debt Impasse

Japan’s Topix index fell for the first time in six days after swinging between gains and losses as talks to avoid a U.S. default resumed after lawmakers scrapped a vote to end the impasse.

Aiful Corp. led a drop in consumer lenders as the group fell the most among the 33 Topix industry groups. Japan Tobacco Inc., Asia’s largest listed cigarette maker, slumped 2 percent after a report on how much it would raise prices following the nation’s sales-tax increase disappointed investors. SoftBank Corp. rose 2.2 percent after Japan’s third-largest mobile-phone carrier took control of Finnish game developer Supercell Oy.

The Topix dropped 0.1 percent to 1,196.78 at the close in Tokyo, after rising as much as 0.2 percent. About three shares fell for every two that rose. Volume was about 36 percent lower than the 30-day average after a typhoon hit Tokyo. The Nikkei 225 Stock Average added 0.2 percent to 14,467.14. The U.S. runs out of borrowing authority tomorrow.

“The whole U.S. situation remains a question mark,” said Seiichiro Iwamoto, who helps oversee the equivalent of $33 billion at Mizuho Asset Management Co. “We doubt they’ll default, but the biggest risk is that sentiment worsens and the macroeconomic situation breaks down. We’re pricing in a certain level of risk, but also picking up stocks that are falling despite having good fundamentals.”

Futures on the Standard & Poor’s 500 Index gained 0.5 percent after Senate leaders resumed talks aimed at ending the gridlock. The Republican-controlled House had earlier scrapped a vote on a plan to resolve the situation. The S&P 500 lost 0.7 percent yesterday after lawmakers failed to reach an agreement.

Credit Rating

Investors holding $120 billion of Treasury bills coming due tomorrow are increasingly worried they won’t get paid. Fitch Ratings placed the nation’s AAA credit rating on a negative watch yesterday, citing the government’s failure to raise the borrowing limit as the deadline approaches.

“Most market participants think the U.S. will reach an agreement to raise the debt ceiling by the 17th,” said Hiroichi Nishi, a Tokyo-based equities manager at SMBC Nikko Securities, a unit of Japan’s second-biggest lender. “But seeing as they haven’t reached a final agreement yet, we can’t say there’s no risk of a default.”

Japan Tobacco

Japan Tobacco, which gets over half its sales from within Japan, lost 2 percent to 3,450 yen today. The cigarette maker will likely raise prices by 3 percent from next April due to the increase in the sales tax, the Yomiuri newspaper reported, without citing anyone. Mizuho Securities Co. analyst Hiroshi Saji said he was expecting a 5 percent increase and a 3 percent bump is a “short-term negative.”

SoftBank climbed 2.2 percent to 7,400 yen, its fourth day of gains. The mobile carrier is buying a 51 percent stake in Supercell with GungHo Online Entertainment Inc., which is 34 percent owned by SoftBank and is paying 20 percent of the $1.53 billion price. GungHo, which is chaired by SoftBank Chairman Masayoshi Son’s younger brother Taizo, surged 16 percent to 81,900 yen. SoftBank is also in talks to buy a stake in Brightstar Corp., a U.S.-based mobile-phone distributor, the company said.

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Also boosting the company’s shares was a report that Alibaba Group Holding Ltd., China’s largest e-commerce company, more than doubled its second-quarter profit. Net income attributable to ordinary shareholders rose to $707 million in the three months ended June from $273 million a year earlier, according to a presentation released yesterday by Yahoo! Inc., which has a stake in Alibaba. SoftBank owns about 37 percent of Alibaba.

Earnings Season

Almost 750 companies on the 1,744-member Topix report results this month. Earnings per share on the gauge are projected to jump 56 percent from the previous quarter, according to analyst estimates compiled by Bloomberg.

The Topix traded at 1.25 times book value today, compared with 2.50 for the S&P 500 and 1.77 for the Stoxx Europe 600 Index yesterday. The Japanese gauge’s 30-day historic volatility was at 17.83 today, compared with its five-year median of 19.31.